Tag Archives: Economics

In the midst of one of the most famous passages in The Wealth of Nations, Adam Smith writes “nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog” (WN I.ii.2).

In and of itself, this is probably not a noteworthy sentence, but it has always rubbed me the wrong way because I have seen it happen. My late dog Mingus would regularly exchange his bone with his “best friend” Casey, and they would do so without conflict or negative consequence.

Mingus was both very empathetic and emotive. Like many border collies, he was smart, could communicate his desires clearly, and was tremendously attentive to his caregivers’ moods, suggesting, already, many Smithian traits. As many animal behaviorists will insist though, these descriptions may be anthropomorphizations. I loved Mingus dearly and was certainly susceptible to projecting meaning onto his actions beyond his capabilities.

Whether Mingus had intent or not, my designation of Mingus as worth affective consideration is compatible with Smith’s moral psychology. On the one hand, because sympathy is, for Smith, an “illusion of the imagination”—people can even sympathize with the dead—emotions need not actually be present in the observed for the spectator to sympathize with them (TMS I.i.1.13). Under Smith’s schema, my fellow feeling with Mingus would be no less sympathy if he himself did not have the thoughts or emotions I judged him to have. And, while he was likely incapable of the impartiality required for Smithian moral agency on his own, this does not disqualify him from my consideration. He may be designated, in Alejandra Mancilla’s terms, a “moral patient” that we advocate for (Mancilla, 2009, pp. 3, 6).

One the other hand, if Mingus did have intent (which I think is the case) I would have been in the most qualified position to know it. Because sympathy works best with those who are closest to us—those in our inner circle of sympathy—I could best interpret his behavior, facial expressions, and voice. I knew Mingus almost his entire life and he had only the briefest time to socialize to other humans before my wife and I adopted him (we rescued him from a Humane Society when he was a few months old). My family knew his preferences, tendencies, behaviors, and moods, and he knew ours; the entire household dynamic including all the human interrelationships, was significantly affected by his presence. This was painfully and repeatedly confirmed when Mingus died unexpectedly and the sociology of the house had to be renegotiated.

Mingus was family even by Smith’s definition; for him, familial relationships are not biologically defined. “The force of blood,” Smith writes, “exists no-where but in trag­edies and romances.” Familial love is instead the “habitual sympathy” of those “naturally bred up in the same house” (TMS VI.ii.1.5–8). In short, losing him was not like losing a family member, it was actually losing one, and the Smithian framework for intimacy, communication, empathy, and care all support this point of view. As a result, whatever claim Smith makes about dogs and exchange does not extend further than the single assertion about economic capability. It has no consequences for the human-animal relationship.

Nevertheless, even though whether I anthropomorphize Mingus is irrelevant to the question of whether I can sympathize with him, it is indeed relevant to whether or not he was capable of exchange since the latter implies intent. Smith’s claim that dogs do not engage in contract appears to me false, but my belief does not make it so anymore than Smith’s writing confirms it. An empiricist system like Smith’s can be as indeterminate as any behaviorism, and the impartial spectator is fallible enough that even our deepest convictions may become corrupt (ASP 72).

Identifying whether dogs have intent is problematic, especially since there is disagreement as to what content such intentionality would have. Neuroscientists can, of course, photograph brain activity, but materialist descriptions of thinking are also subject to interpretation. Smith’s comment on dogs place us squarely in the classic philosophical problem of other minds and Smith’s corpus does not have the resources to solve it.

Recognizing the metaphysical and philosophical limitations of Smith’s approach, then, my intent in this paper is not to ask whether dogs engage in contract per se, but what happens to Smith’s account of humanity if they can. I will offer more evidence to suggest that the possibility is believable, but my emphasis will be on the text rather than the fact of the matter.

This textual approach is further justified by a commentator who claimed that Smith’s remarks about dogs be considered an essentialist definition of human beings. He claimed that Smith was arguing, not simply that people are the only ones who make contracts, but that making contracts is a necessary part of what it means to be human. If Mingus’s behavior challenges Smith’s veracity, and if the commentator is correct—if Smith defines a human life in this context—then Smith’s error might call his other writing into question as well. My task in this discussion is to ask if it does, and if so, how much. To do so, I engage in detailed exegesis on WN I.ii.2 and argue that this sentence is neither a definition of humanity nor intrinsically connected to the rest of Smith’s work. I conclude by explaining why I think this examination is relevant and important. To these purposes, unless otherwise specified, I will regard exchange and contract as designating the same behavior: consciously giving another creature, in Smith’s words, “this for that” (WN I.ii.2).

Is the assumption of self-interested behavior assumed in economics at odds with altruism and compassion? I believe that this question—which has been formulated in various ways in the literature for the past two centuries—is the thorn that often turns us away from reconciling the Adam Smith of the Wealth of Nations (hereinafter WN) with the Adam Smith of The Theory of Moral Sentiments (hereinafter TMS). Economics has certainly made WN the most known contribution by Smith since it is generally assumed that publication of WN marks the beginning of economics as a discipline independent from philosophy. Indeed, it is a widely held belief that the concept of self-interest is not only central to the WN, it also established self-interest as the founding principle of economic theory. For example, in his “Mathematical Psychics: an Essay on the Application of Mathematics to the Moral Sciences,” F. Y. Edgeworth wrote, “the first principle of economics is that every agent is actuated by self interest” (1881, p. 16). This was a received view at the time and the sentiment has not changed much since then, although the self-interest paradigm has graduated into the more sophisticated abstraction of utility maximizing behavior. Under this more palatable name, self interested behavior has been attributed more broadly to all human behavior, not just economic phenomena. Gary Becker, for example, claims that “the economic approach is a comprehensive one that is applicable to all human behavior” (1976, p. 8). In “The Successes and Failures of Professor Smith,” George Stigler claims that Smith “put in the center of economics the systematic analysis of the behavior of individuals pursuing their self-interest under conditions of competition. This theory was the crown jewel of The Wealth of Nations and it became, and remains to this day, the foundation of the theory of allocation of resources” (1976, p. 1201).

Part of the problem not only with the claim that self-interest is central to WN, but also with the claim that it is also the founding principle of economics, is that our understanding of self-interest seems to fall within a wide range and we often fail to see the variation in connotations from one end of this range to the other until we see the variety of interpretations of WN. On its leanest interpretation, Smith’s notion of self-interest is assumed to be a type of ethical egoism. And on its grandest interpretation, “the Wealth of Nations is a stupendous palace erected upon the granite of self-interest” (Stigler, 1971, p. 265). The curious thing is that these widely-different interpretations seem to draw from the WN the same conclusion: that Smith’s chief point is that our actions are principally motivated by self-interest. The problem is not only that both interpretations misunderstand Smith, but they also present dangerous implications since the least favorable interpretation can be used as a pretext for uncritical charges of greed and cut-throat individualism, and the grand interpretation can be used as justification for the uncritical view that we are best regulated by self-interest.

Where did we go wrong in the understanding of Smith? Nowhere in WN does Smith state that self-interest is the only or the best motivation for human action, not even of the economic sort. This has been recognized in the most sober commentaries. For example, R. H. Coase argues that “Self-interest is certainly, in Adam Smith’s view, a powerful motive in human behavior, but it is by no means the only motive” (1976, p. 529). Jon Elster observes that “the assumption that all behavior is selfish is the most parsimonious that we can make…[and] we cannot conclude that selfishness is the more widespread motivation…[because] the world is messy, and the most parsimonious explanation is wrong” (1989, p. 54). Vernon Smith recognizes that, “There is a vulgar representation of Adam Smith as championing the unconstrained pursuit of self-love to the exclusion of other values by humans…” (2013, p. 285).

But the strongest evidence is given to us by (Adam) Smith himself. We have to start with TMS, however, since it lays the foundation that makes WN intelligible as a systematic treatise on economic behavior.

Adam Smith (1723-1790) was a polymath with several of his key concepts and theories either having modern counterparts and/or “enjoying” empirical support. Smith wrote about the origin and proper use of language, grammar, the history of astronomy and ancient physics, moral philosophy, music, dance, and poetry, and; economics. Despite the very wide variety of topics there was, in my estimation, a common themes. One such theme is connections or inter-personal relations between and among people.

Smith’s most famous book, at least to economists, is the Wealth of Nations (WN). In it, Smith discusses many things including the workings of a private market. A market is the exchange of things in which various motives influence market activity. In WN the motivation to engage in market activity is to improve your own economic conditions. What is exchanged is money for goods and services. In the Theory of Moral Sentiments (TMS) the motivation is the pleasure received from mutual sympathy. Smith says that:

nothing pleases us more than to observe in other men a fellow-feeling with all the emotions of our own breast; nor are we ever so much shocked as by the appearance (Smith, 1969, p. 13).

What is “exchanged” is personal sentiments and moral judgments.

One common theme in Smith’s writings is the connections and interpersonal relations among people. Four questions related to the common theme in Smith’s writings are explored in this paper. First, why is language developed? Second, what is the purpose of good communication? Third, why are Newton’s writings considered of extraordinary importance? Fourth, what is the role of sympathy in human affairs?

As is well known, Adam Smith spent about two years in Europe, most of it in France. It was in fact during his stay in Toulouse that he began to work on what became The Wealth of Nations (WN); but what proved decisive for the deepening of his understanding of market processes were his encounters in Paris with Paul-Henri Thiry (Baron d’Holbach), Claude Helvetius, Jean d’Alembert, André Morellet, Jacques Necker, and especially his discussions with Anne-Robert-Jacques Turgot and François Quesnay. (Quesnay was universally regarded as the leader of the so-called Physiocrats, who, in addition to Quesnay, included Pierre-Paul Le Mercier de la Rivière, Pierre Samuel du Pont de Nemours and Turgot but the latter did not rigidly subscribe to the core dogmas of that school.) Although no one denies that Smith was profoundly influenced by these encounters, the question of precisely what debt Smith owed to these thinkers is not central to my purpose here. It is, indeed, a controversial one. Roberts (1935), for example, argued that Smith drew heavily from the writings of Pierre Le Pesant de Boisguilbert whom he would have known through later writers; Du Pont de Nemours and the Marquis de Condorcet, on the other hand, suggested that anything of value in Smith’s WN could be found in what Turgot had written (Groenewegen 1968, p. 271). But this question is probably impossible to answer categorically, partly because Smith’s manuscript notes were destroyed after his death. To talk about an intellectual debt is to put the matter in terms that are too narrow and could be only of interest to erudite biographers.

What I propose to do is to paint in broader strokes the parallels—some intentional, some not—and the significant differences between Smith’s own thought and the French political economists who immediately preceded Smith (and some who immediately followed him)—what Joseph Schumpeter (1954, p. 492) called the ‘French tradition’ or, in any event, its most prominent representatives. My intention, in other words, is not to write an intellectual biography of Adam Smith but to use this investigation as a means of better appreciating the original contributions he made to economic theory and moral philosophy—as well as the less convincing aspects of his reflections—by setting them in a larger context where similar ideas where emerging. The first French political economists advanced a flurry of novel ideas, some of which were arguably more perspicacious than those of Smith. In the end, Smith’s talents in articulating a (more or less) coherent and imposing vision of the balancing of human drives and enterprising spirit stands out. But this should not prevent us from considering whether and to what extent some parts of his system turn out to have been no better and, occasionally, less well analyzed than they had been by his French contemporaries or immediate successors. Indeed some historians of economic thought, most notably Joseph Schumpeter (1954) and Murray Rothbard (1995), have gone as far as claiming that Smith did not contribute any new idea to the fledging political economy of his era. In the same vein, Henry Macleod (1896, p. 73) wryly noted that

Smith’s work and Condillac’s were published in the same year. Smith obtained universal celebrity in a very short time. Condillac’s was universally neglected, but yet in scientific spirit it is infinitely superior to Smith.

The challenge I face here is to take this charge seriously while also trying to be fair to Smith. In the next section, I trace the parallels and differences between Smith and the French political economists who preceded him in their attempts to understand markets as autonomous, spontaneous processes of coordination among myriad producers and consumers. Smith’s ‘invisible hand’ metaphor is very apt and telling but the idea behind it can be traced back much farther in time than Smith’s writings. In section II, I turn to a comparison between Smith’s labour theory of value and the French tradition’s more subjectivist approach. In section III, I underline the French political economists’ more perceptive views on the role of the entrepreneur whose presence is not quite as noticeable in Smith’s writings. Finally, in the concluding section, I identify the aspects of Smith’s political economy and moral philosophy that, on balance, stand out as unique contributions in spite of the weaknesses identified above, and briefly discuss the impact of the WN on the French political economists who read and reacted to it.